When hospitals launch their own health plans, insurance negotiations get trickier

A number of health systems say their decision to enter the insurance market has complicated their relationships with traditional payers, Modern Healthcare's Melanie Evans reports.

Catholic Health Initiatives (CHI) CEO Kevin Lofton says he thinks the system's entry into the insurance market played a role in Blue Cross and Blue Shield (BCBS) of Nebraska cancelling the system's provider contract last fall. "We don't know for sure it's because we entered the market and got a license approved, but the fact is we're in a pretty rough, intense negotiation with them in terms of the network," he says.

Lofton was one of several executives at the annual meeting of the American College of Health Care Executives in Chicago who said insurance companies appear unhappy with the increasing number of providers offering insurance.

The resulting tension with insurance companies can affect hospitals' bottom line. CHI says the loss of its contract with BCBS Nebraska contributed to the $121.6 million operating loss for the quarter that ended Sept. 30, 2014.

However, BCBS Nebraska said last year that its falling out with CHI was over costs. Lee Handke, a senior vice president for the insurer, said, "While other providers have worked with us to reduce or hold the line on costs, Alegent Creighton providers, in particular, cost significantly more than others in Omaha—and they continue to ask for annual increases."

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Even so, Dan Wolterman, CEO of Memorial Hermann Healthcare System in Texas, agrees with Lofton that insurance companies are displeased by providers moving into their market. "They're not happy with Memorial Hermann being in the insurance business," he says, adding, "But we're off the ground. And we're now in the commercial and Medicare Advantage programs and hope that will start the ball moving to where we can take risk."

Gregory Spencer, the CMO at physician group Crystal Run Healthcare, says that changes in the health care market are pushing providers into insurance out of necessity. "There will be no more money in the system than there is now," he says, adding, "But you've got the opportunity now to get that arbitrage."

Steven Safyer, CEO of Montefiore Health System in New York, agrees that providers may have little choice but to compete with insurers. "My goal is not to be an insurance company," he says, but he notes that Montefiore has sought regulatory approval to enter the market in case insures seek unsustainable rate reductions (Evans, Modern Healthcare, 3/20 [subscription required]).